HSBC analysts Willem Sels and Lucia Ku argue that concerns over mega IPOs and stretched valuations in US equities are offset by solid earnings growth across most S&P 500 sectors, driven by AI-related demand. They stress that positive earnings momentum is broadening beyond technology, and maintain an overweight stance on US equities, viewing short-term volatility as a buying opportunity.

AI cycle underpins US stocks

"While mega IPOs have been in the spotlight recently amid market concerns over elevated valuations and investors taking profits after the lock-up periods, we believe earnings growth for the majority of the S&P 500 remains supportive, and valuations are still reasonable by historical standards. Positive earnings momentum is spreading beyond IT and Communications, with Energy and Materials also benefitting from data centre construction required to support AI-led innovation."

"Consensus earnings growth forecasts for 2026 exceed 10% across most sectors (23% overall), except for Consumer Staples and Real Estate. The US is also less exposed to downside risks from the Middle East conflict."

"Given these positive drivers and our strong belief that the AI innovation cycle is here to stay, driving stronger demand for US assets, we remain overweight on US equities and are more bullish on the USD. We would view any short-term market volatility as a buying opportunity while remaining diversified with quality bonds, gold and alternative assets."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)